Bank Reconciliation and Control Accounts: notes

Cash Book and Bank Statement Differences

• Cash book: the business's own record of money paid into and out of the bank.
• Bank statement: the bank's record of the same account, sent to the customer.
• Why they differ: some items are recorded by one side but not yet by the other, so the balances do not match.

Items That Cause Differences

• Unpresented cheque: a cheque written and recorded in the cash book but not yet paid by the bank. Example: cheque for $120 not yet cleared, so subtract $120 from the bank statement balance.
• Uncredited deposit: money paid into the bank and recorded in the cash book but not yet shown on the statement. Example: deposit of $200 not yet credited, so add $200 to the bank statement balance.
• Bank charges: fees the bank deducts that the business has not yet recorded. Example: charges of $30, so subtract $30 from the cash book balance.
• Dishonoured cheque: a customer's cheque the bank refuses to pay. Example: cheque of $60 bounces, so subtract $60 from the cash book balance and record the customer as owing it again.

Bank Reconciliation Statement

• Purpose: shows how the bank statement balance and cash book balance agree after adjustments.
• Method: start from one balance, adjust for each timing item, and reach the same figure as the other balance.
• Example: bank statement $950, minus unpresented cheque $120, plus uncredited deposit $200, equals $1,030, which matches the cash book balance.

Sales and Purchases Ledger Control Accounts

• Control account: a summary account in the general ledger that totals all balances in a subsidiary ledger.
• Sales ledger control account: totals customer (debtor) balances. Example: opening $500, plus credit sales $1,200, minus cash received $800, minus returns $100, gives closing $800.
• Purchases ledger control account: totals supplier (creditor) balances. Example: opening $400, plus credit purchases $900, minus payments $700, minus returns $50, gives closing $550.
• Purpose: checks the accuracy of individual ledgers and helps locate errors.
• Sources of entries: sales and purchases day books, the cash book, returns books, and the journal.